Executive leaders know that investing in enterprise digitalization is essential to driving financial performance, but most organizations are not realizing the full benefits of that spending. Rather than doubling down on investment discipline, executives must drive digital cohesion to close this gap.
The executives who have led the charge to keep investing in digital capabilities had high hopes they could increase operational efficiency or tap into new revenue streams. They even opted to double down on spending, rather than pull back, to help weather the economic storms ahead. But they are underwhelmed by the results. Nearly seven in 10 (67%) of CFOs say digital is failing to deliver the expected enterprise-level financial benefits, and most CIOs agree that value from enterprise digital initiatives has been — at a minimum — too slow to manifest.
They are not wrong. Productivity, the mostly commonly cited goal of digital spending, has flatlined across all dimensions, according to our analysis of S&P Global 1200 companies. And median companies still see no revenue from sales of digital products and services, or from digital business models; only 5% of their revenue comes from digital channels.
The tried-and-true playbook to solve the problem: Conduct rigorous vetting of business case assumptions, set key performance indicators upfront to track performance and adopt mechanisms to hold project sponsors accountable for the promised returns. Despite the unfamiliarity, iterative nature and diffuse benefits of digital initiatives — and despite the desire to avoid stifling innovation — finance teams have pressed ahead to improve financial discipline for digital spending.
This typical response helps, but only up to a point. Such financial discipline accounts for little more than 40% of the controllable effect leadership teams can have on the outcomes from digital spending. Standard problem solving may improve the on-time, on-budget delivery of individual projects, but it is woefully insufficient to make a change to enterprise-level financial outcomes. It overlooks a crucial reality: The links between initiatives dictate how much value digital spending will create for the organization.
A wider lens, with an emphasis on coordinating efforts so they reinforce each other, delivers 1.5 times greater impact on digital spending performance. Every senior executive — especially the CFO, CIO and named digital or data leaders — should work together to take a more holistic view, which we call digital cohesion (see Figure 1).
Take, for instance, a company that invests in data science talent and in new machine learning tools for business analytics, but doesn’t deploy the talent to leverage the tools. Or, imagine the new talent and tools are paired, but no effort is made to feed reliable data flows to the tools or to encourage leaders to use insights from the analytics when making decisions. The potential to improve decision speed and quality will remain largely unrealized with little to no noticeable improvement in financial outcomes.
Variations on this problem — uncoordinated or duplicative efforts — sum to meaningfully undermine returns on enterprise digital spending. Conversely, organizations that manage interdependencies see significantly better outcomes from their digital spending (see Figure 2).
Four simple but powerful steps drive digital cohesion:
Your organization can’t identify and manage interdependencies if executives don’t agree on a shared vocabulary. Language that is commonly understood and widely used is integral to success — in the same way that a broadly accepted set of labels is important for mutual understanding of enterprise risks.
Our framework with five types of digital interdependencies provides a widely applicable starting point that your organization can customize (see Table 1).
Even with a shared language, no one group in the organization has the knowledge required to undertake this mission alone. Finance and IT, along with technology leaders and process experts throughout business units (BUs) and functions all play a role, but even this group will need help. One way to obtain the information you need: Encourage and reward employees at all levels and all parts of the organization to identify inefficiencies (without the obligation to offer solutions). Then, the executives and experts can bring their perspectives to bear where they see clustered problems, root causing where interdependencies between digital projects and processes must be addressed.
Identification is just a start. Digital interdependencies need to be managed on an ongoing basis, which is complicated by two factors:
Digital interdependencies often require cross-functional responsibility, which leads to diluted accountability for outcomes.
Digital interdependencies evolve over time, thus requiring continuous learning and documentation.
One North American insurer informed us it overcame these barriers by creating living project charters that tie budget allocations to achieving realistic goals. As multiyear digital initiatives progress, finance adjusts funding to BUs in subsequent years to reflect the outcomes BU leaders committed to at project inception. This increases BU leaders’ level of accountability for highly interdependent digital projects by creating more serious stakes for meeting their commitments. (The same tactic could apply to central functions).
At the same time, the company replaced traditional static business cases with learning-informed project charters. Finance leaders can update the charters when factors external to the project change, while target adjustments ensure the goals to which BU leaders are held are credible. The charters also help to disseminate lessons learned to interdependent projects.
Underpinning the first three steps is the need for cross-functional buy-in and collaboration. Without that support, identifying and managing digital interdependencies will remain sporadic at best. Executive leaders can overcome perceived competing interests (especially prevalent between finance and IT) by building empathetic partnerships.
Colgate-Palmolive’s CFO Stan Sutula and CIO David Foster periodically map their functional objectives to digital priorities at the U.S.-based consumer products multinational. This exercise confirms areas of clear alignment; they recalibrate areas where functional actions may be misaligned.
The two also use a set of informal “rules of engagement” to keep their interactions oriented toward learning:
Ask at least as many questions as statements you make.
Lead with questions rather than assertions.
Rhetorical questions, or requests phrased as questions, don’t count as questions.
Discuss strategy before discussing financials.
Finally, Sutula and Foster broadcast their alignment across a variety of forums, including co-chairing the digital steering committee, releasing joint statements and presenting a unified position on digital investment approvals.
This partnership models knowledge-sharing and collaboration that drives stronger “network performance” on digital initiatives throughout the enterprise and leads to better, more efficient outcomes from this spending.
Organizations that achieve digital cohesion and deliver on their expected outcomes from digital spending see 2.8 percentage points in added EBITDA growth (average over three years) relative to peers whose digital spending underdelivers.
However, the long-term costs, in terms of not achieving digital cohesion, will likely be far higher than this EBITDA gap, as organizations that fail to secure digital capabilities fall further and further behind the first movers every year. Executive leaders can’t afford not to invest in maximizing the returns from digital spending.
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2022 Gartner Driving Business Outcomes from Enterprise Digital Spending Survey, n = 102 CFOs.
2022 Gartner Overcoming the Barriers to Digital Execution Survey, n = 94 CIOs and senior IT leaders.
Gartner Digital Execution Scorecard, sample as of January 2023, n = 1,634.
By “outcomes” we refer to an index of performance across six factors that CFOs identified as key goals for digital spending: